The world’s greatest investors: Kenneth Heebner

Kenneth Heebner was born in Philadelphia in 1940 and studied at Amherst College and Harvard Business School. After graduating in 1965 he worked as an economist, then moved into fund management in 1971, starting out as an assistant fund manager. In 1990 he set up his own investment manager, Capital Growth Management. He currently runs three funds: CGM Mutual Fund, CGM Focus Fund and CGM Realty Funds.

What is his strategy?

Heebner seeks out little-appreciated economic trends that he believes will affect entire sectors. He then bets on a few key companies that he thinks will do well as a result. On occasion he has also shorted shares of companies that he thinks will be harmed. While his general preference is for shares with low price/earning ratios, he will buy growth stocks if he thinks that they are set to benefit from economic growth.

CGM Focus has returned an average of 11.8% a year since it was set up in 1997, so a $10,000 investment would have grown to $96,300. This compares with 7.3% a year (or $40,726) from the S&P 500. Note, however, that the fund has lagged the market over the past decade. CGM Realty Fund, focusingon property and housing-related stocks, did even better, returning 14.4% over the last 23 years, compared with 10% for similar funds.

What are his biggest successes?

At the peak of the dotcom bubble he aggressively shorted tech and telecoms stocks, profiting as they collapsed. He then became convinced that housebuilders would do well due to a lack of supply, so bought into the likes of DR Horton, which surged from $8 a share in December 2000 to $37 by early 2005. By the end of 2004 he felt that the US housing market had got out of hand, so he dumped all his housing shares in early 2005.

What lessons are there for investors?

Concentrating your portfolio and focusing on a few key stocks is a good way to raise your odds of beating the market. However, this can also lead to extended periods of underperformance. If you are going to go down this route you need to have a high tolerance for risk, and only invest money that you think that you won’t need at short notice.